Almost three-quarters (74%) of UK entrepreneurs are risking the long-term success of their business by not giving adequate thought to how they will eventually exit the business, according to Deloitte, the business advisory firm.

The survey findings, published in the report ‘Entrepreneurship UK: 2008’, reveal that in 72% of cases the founders are still involved in the day-to-day running of the business, yet 39% have no exit plan in place. Thirty-five percent are simply waiting for an opportunistic approach from a third party.

Tony Cohen, head of entrepreneurial business at Deloitte says: “An entrepreneur’s first objective understandably tends to be to create a business upon which to build value. They will often only consider selling that business when first approached by a potential buyer. This can leave them unprepared and at a disadvantage. Having a clear exit strategy in place from the outset may sound counter-intuitive but is, in fact, essential.

“With entrepreneurial businesses, it is vital to plan for the future, growing the value and attractiveness of the business by implementing a clear development strategy from the beginning, including putting in place a strong management team to lead the business following the eventual departure of the entrepreneur. 

“Private equity houses are keen investors in family businesses, indeed 62% of family businesses are bought by private equity investors according to the Centre for Management Buy-Out Research.  Unfortunately the lack of planning results in difficulties agreeing a price, with owners reluctant to give potential investors access to vital financial information.  On the positive side, good succession planning through a management buy-out can ensure the family firm maintains independent ownership and stewardship, albeit in a metamorphosed business structure.”

The benefit of having a clear exit strategy in place from the very start is echoed by entrepreneur Brian Hamill.  Brian is currently chairman of the executive search business Redgrave Partners LLP.  Co-founded by Brian earlier this year, it is the fourth business he has been involved with and has always managed to exit previous companies as planned.

He comments: “We created Redgrave Partners with a clear growth and ultimate exit strategy in mind – the aim being to create an attractive proposition for a trade buyer or for floating on the stock exchange.  Knowing when you plan to exit and not leaving it too late is vital to the long-term good of the business.”

He continues: “There are four key areas we focus on to make your business an attractive proposition to the eventual buyer: having a good management team in place; good succession planning; good housekeeping and accounting; and strong cash flow, balance sheets with a clear growth plan for at least the next three to four years.

“When we created Redgrave, we already had in place a plan to exit the business in 2011, growing the annual turnover from £2 million to £15 million and increasing the territories we currently operate in from one to five.  In doing so we would have created a business that is attractive to a trade buyer by demonstrating rapid profit growth, being cash accretive and broadening the footprint of the company.”

Tony Cohen adds: “An exit is not something which can happen easily overnight and time spent planning for the inevitable and structuring the business correctly is seldom wasted.”

-Ends-

Notes to Editors:

About the research
Entrepreneurship UK: 2008 is a report on the results of an annual survey, conducted by Deloitte, which offers an insight into the mindset of the country’s entrepreneurial business talent.

The press release also references a research paper from the Centre for Management Buy-out Research, titled: ‘Private equity in family firms’, published in June 2008. 

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.
Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities.  Please see www.deloitte.co.uk\about for a detailed description of the legal structure of DTT and its member firms.
The information contained in this press release is correct at the time of going to press.